University of Michigan Journal of Law Reform

University of Michigan Journal of Law Reform Volume 50 Issue 1 2016 It is Time for Washington State to Take a Stand Against Holmes's Bad Man: The Value of Punitive Damages in Deterring Big Business and International Tortfeasors Jackson Pahlke University of Michigan Law School Follow this and additional works at: http://repository.law.umich.edu/mjlr Part of the Constitutional Law Commons, Law and Economics Commons, State and Local Government Law Commons, Supreme Court of the United States Commons, and the Torts Commons Recommended Citation Jackson Pahlke, It is Time for Washington State to Take a Stand Against Holmes's Bad Man: The Value of Punitive Damages in Deterring Big Business and International Tortfeasors, 50 U. Mich. J. L. Reform 215 (2016). Available at: http://repository.law.umich.edu/mjlr/vol50/iss1/5 This Note is brought to you for free and open access by the University of Michigan Journal of Law Reform at University of Michigan Law School Scholarship Repository. It has been accepted for inclusion in University of Michigan Journal of Law Reform by an authorized editor of University of Michigan Law School Scholarship Repository. For more information, please contact mlaw.repository@umich.edu.

IT IS TIME FOR WASHINGTON STATE TO TAKE A STAND AGAINST HOLMES S BAD MAN: THE VALUE OF PUNITIVE DAMAGES IN DETERRING BIG BUSINESS AND INTENTIONAL TORTFEASORS Jackson Pahlke* ABSTRACT In Washington State, tortfeasors get a break when they commit intentional torts. Instead of receiving more punishment for their planned bad act, intentional tortfeasors are punished as if they committed a mere accident. The trend does not stop in Washington State nationwide, punitive damage legislation inadequately deters intentional wrongdoers through caps and outright bans on punitive damages. Despite Washington State s one hundred and twenty-five year ban on punitive damages, it is in a unique and powerful position to change the way courts across the country deal with intentional tortfeasors. Since Washington has never had a compehrensive punitive damages framework, and has largely avoided the sway of the nationwide tort reform movement, it is a blank slate for demonstrating how punitive damages should be used to deter intentional wrongdoing in a fair and appropriate way. While law and economics theorists have debated how to reach complete deterrence, this Note s argument takes reality into consideration in the form of binding Supreme Court precedent on punitive damages to provide a punitive damages framework that results in more deterrence than current punitive damages provide, and still passes constitutional scrutiny. This Note argues for a punitive damages framework based on graduated levels of culpability and correlated compensatory to punitive damage-award ratios to allow for as much deterrence of intentional wrongdoing as possible, while conforming to Supreme Court precedent. TABLE OF CONTENTS INTRODUCTION... 217 I. PUNITIVE DAMAGES: DETER AND PUNISH TO EVEN THE SCALES... 220 A. The Law and Economics Take on Punitive Damages: Optimal Deterrence... 223 B. The Supreme Court Does Punitive Damages, Timidly.. 224 1. The Excessive Fines Clause of the Eighth Amendment Does Not Apply to Civil Cases.. 224 * J.D. Candidate, 2017, University of Michigan Law School. Thanks to my family and friends for all of your support. 215

216 University of Michigan Journal of Law Reform [VOL. 50:1 II. 2. A Framework for Determining Excessiveness Under the Fourteenth Amendment for Due Process... 225 3. Using a General Concern of Reasonableness to Determine if the Punitive Award is So Grossly Excessive as to Violate the Due Process Clause of the Fourteenth Amendment... 226 4. Judicial Review is an Important Safeguard to Ensure Punitive Damage Awards are Constitutional... 226 5. 500-to-1 Punitive to Compensatory Damage Award is Not Constitutional if Conduct is Not Particularly Reprehensible, and There is Only Minor Economic Damage... 227 6. General Guideline: Few Punitive Damage Awards Exceeding a Single-Digit Ratio with Compensatory Damages Will Satisfy Due Process... 228 7. Punitive Damage Awards Can Only be Based Off Harm Suffered by Parties to the Case... 229 8. 1-to-1 Compensatory to Punitive Damages Ratio is a Fair Upper Limit for Maritime Cases... 230 C. The Punitive Scene in Washington: Largely Vacant... 231 1. No Punitive Damages Unless a Statute Green Lights Them, If They Are Brought Under General Maritime Law, or Under the Laws of Another State... 232 2. The Common Law on Punitive Damages in Washington: A Pound of Flesh Does Not Help the Public... 233 3. Washington s Constitution: The Right to a Jury Trial Does Not Include Punitive Damages... 234 A DEPICTION OF A SUCCESSFUL PUNITIVE DAMAGES AWARD IN WASHINGTON... 235 A. Punitive Damages Serve the Public Good... 235 1. Make Intentional Tortfeasors Think Twice Before Committing a Tort... 236 2. Punish Intentional Tortfeasors for Being Intentionally Bad... 238

FALL 2016] Take a Stand Against Holmes s Bad Man 217 3. Restricting Punitive Damages Means Punitive Damage Worthy Conduct is More Likely to Occur and be More Profitable... 239 B. The Amount of Punitive Damages Must be High to Disincentivize Intentionally Bad Acts... 240 III. A PROPOSED PUNITIVE DAMAGE REGULATORY SCHEME CUSTOM-FIT FOR WASHINGTON, AND A MODEL FOR THE ENTIRE NATION... 242 A. Sifting Out Arbitrary Decisions... 242 1. Mens Rea Inquiry... 243 2. Clear and Convincing Requirement... 246 B. Where Should the Punitive Damages Go?... 247 C. Punitive Damages through the Legislature... 248 CONCLUSION: PEOPLE NEED PROTECTION NOT BIG BUSINESS AND INTENTIONAL TORTFEASORS... 248 INTRODUCTION Intentionally harming someone is wrong and warrants punishment to deter future intentional wrongdoing. Punitive damages serve this role. 1 Judge Richard Posner underlined the utility of punitive damages in the paradigmatic case, Mathias v. Accor Economy Lodging, where he upheld a punitive damages award that was over thirty-seven times the compensatory damages award to punish the Defendant, Motel 6, for intentionally subjecting its customers to bed bugs. Motel 6 decided it was more economical to lie to their customers than take care of their bed bugs. 2 The lawsuit s punitive damage award straightened out Motel 6 s cost-benefit evaluation so it was no longer economically efficient to lie to its guests about bed bugs. Despite the upsides of punitive damages, they are under siege from an entrenched tort reform movement, which argues that punitive damages are arbitrary and harmful to innovation. 3 As anti- 1. Alexandra B. Klass, Punitive Damages and Valuing Harm, 92 MINN. L. REV. 83, 90 (2007). 2. Mathias v. Accor Econ. Lodging, Inc., 347 F.3d 672, 677 (7th Cir. 2004). 3. See Jill McKee Pohlman, Comment, Punitive Damages in the American Civil Justice System: Jackpot or Justice?, 1996 UTAH L. REV. 613, 654 (1996) (advocating for punitive damage reform and noting that [m]any have... referred to these [punitive damage] awards as jackpots because they are awarded in large amounts without any predictability and often without reason. ).

218 University of Michigan Journal of Law Reform [VOL. 50:1 punitive damage legislation shows, these arguments have been accepted by a large number of legislators and their voters. 4 The result has been a scaling back of the effectiveness of punitive damages in the states that still have punitive damages, and the outright elimination of punitive damages in others. 5 Critics of tort reform argue that intentional tortfeasors and big business enjoy a subsidy from the American people to commit intentional torts since they are punished as if their purposeful wrongdoing was simple negligence. Washington State has never had punitive damages, except in specific and limited circumstances. 6 Its ban on punitive damages is not a result of its legislation or Constitution, but the holding of three Washington Supreme Court Justices in 1891. 7 This means Washington is not tied to anti-punitive damages legislation or an entrenched political stance on punitive damages since the ban stems from common law created in the 1800s, which can be overruled by legislation. All of this places Washington in a position to set the standard for how punitive damages should be used in the United States. If Washington can demonstrate the benefits of an effective punitive damages framework, it may persuade other states to put down their tort reform armor and pick up a sword to deter intentional wrongs. This Note s proposed reform is a punitive damages framework that would be implemented by Washington s legislature. The legislative framework would provide substantially more deterrence than Washington, or any state, currently has while passing the Supreme Court s scrutiny on punitive damages. The framework focuses on graduated culpability levels tied to specific punitive damage-award ratios to obtain as much deterrence as possible while complying with the Supreme Court s precedent on punitive damages. This reform provides a new perspective on punitive damages that focuses on adapting law and economics efficiency arguments to the Supreme Court s muddled punitive damages doctrine. In doing so, it recommends a clear punitive damages platform that can easily be adopted by other states. Punitive damages scholarship focuses almost exclusively on arguments about why punitive damages are arbitrary, 8 or, taking a different view, how punitive damages can be 4. See Punitive Damages Reform, AM. TORT REFORM ASS N, http://www.atra.org/issues/ punitive-damages-reform (last visited Sept. 23, 2016). 5. Id. 6. Infra Part I.C. 7. Spokane Truck & Dray Co. v. Hoefer, 25 P. 1072, 1074 75 (Wash. 1891) (holding punitive damages are against state interest). 8. Before Phillip Morris USA v. Williams, 549 U.S. 346 (2007) and Exxon Shipping Co. v. Baker, 554 U.S. 471 (2008) were decided, Professors Chanenson and Gotanda argued the

FALL 2016] Take a Stand Against Holmes s Bad Man 219 most efficient, without regard to Supreme Court precedent and other practical constraints to implementation. 9 This Note s reform takes both sides of the scholarly debate into consideration, as well as existing precedent. Furthermore, there is no legal scholarship advocating for a specific punitive damages framework in Washington State. This is likely due to the fact that only two years after becoming a state, the Washington Supreme Court ruled that punitive damages are prohibited. 10 The chance to implement a punitive damages framework in Washington that could serve as a model for other states is an important opportunity to better protect individuals from intentional wrongdoing that should not be overlooked any longer. This Note provides a comprehensive solution to Washington s lack of punitive damages, and offers a model for other states looking to better deter intentional wrongdoing by focusing on the deterrent effect of punitive damages. Part I explains the purpose of punitive damages, their history in American political culture, and their current status in the Supreme Court and Washington State. It examines the most persuasive law and economics theories behind punitive damages, binding precedent from the United States Supreme Court, and the few exceptions where punitive damages are available in Washington. This review shows that the Supreme Court s punitive damages precedent is anything but clear. Part II shows the benefits a punitive damage framework can offer Washington. This part centers on the Washington Supreme Court s focus in 1891 on the public good, 11 and discusses how punitive damages actually serve the public good. This discussion tracks basic law and economics theory. Part III shows why this Note s proposed reform of implementing a graduated culpability framework for punitive damages is consistent with both the public interest of Washington and Supreme Court precedent. It also offers options for how to split punitive damages awards. This Part concludes with recommendations on presumptive constitutional limit on punitive damages should be set by looking to comparable civil or criminal legislative fines in order to give fair notice to defendants and to avoid arbitrary awards. Steven L. Chanenson & John Y. Gotanda, The Foggy Road for Evaluating Punitive Damages: Lifting the Haze from the BMW/State Farm Guideposts, 37 U. MICH. J.L. REFORM 441, 492 (2004). 9. Steve P. Calandrillo, Penalizing Punitive Damages: Why the Supreme Court Needs A Lesson in Law and Economics, 78 GEO. WASH. L. REV. 774, 774 (2010) (claiming that [from] a law and economics lens... there is no justifiable basis for tort law s requirement of morally reprehensible or intentional conduct before punitive damages may be awarded. ) 10. See infra Part I.C. 11. Spokane Truck & Dray Co., 25 P. at 1074 75.

220 University of Michigan Journal of Law Reform [VOL. 50:1 how to implement the framework; specifically, by using the legislature instead of trying to change Washington Supreme Court precedent through litigation. This Note ends by emphasizing the importance of overhauling punitive damages in every state, and why this reform is an effective model for other states to use. Washington has a unique opportunity to make intentional tortfeasors take responsibility for their intentional bad acts. By utilizing the outer limits of Supreme Court precedent, Washington State can transform our punitive damages back to their central purpose deterrence. I. PUNITIVE DAMAGES: DETER AND PUNISH TO EVEN THE SCALES Punitive damage awards are one of the biggest areas of contention in the tort reform debate. They are defined as monetary awards in excess of the economic and noneconomic damages that make an injured party whole, and their purpose is typically to deter future conduct by the defendant and similar parties. 12 Other scholars and commentators characterize punitive damages as a punishment. 13 In the wake of the tort reform movement, 14 punitive damages have often received the brunt of political and social criticism. 15 This criticism extends back to the 1970s when tort reform advocates began their public relations campaign to restrict personal injury suits and limit the amount of recovery available based on the type of lawsuit, regardless of the amount of harm, arguing that the civil justice system was broken and served undeserving personal injury victims and attorneys. 16 Since the 1970s, tort reform advocates have continuously objected to personal injury suits. They have argued that personal 12. See Catherine M. Sharkey, Punitive Damages as Societal Damages, 113 YALE L.J. 347, 363 64 (2003). 13. See id. 14. The tort reform movement seeks to reduce the volume of victims that bring tort lawsuits and to limit the amount of recovery possible. It does not represent any reform to tort law, but only those that constrain and limit remedies in our civil justice system. 15. Michael L. Rustad, Access to Justice: Can Business Co-exist with the Civil Justice System?: The Closing of Punitive Damages Iron Cage, 38 LOY. L.A. L. REV. 1297, 1298 (2005) ( Truesounding anecdotes do not make claims about punitive damages true. Few arguments are as powerful as a populist-sounding cause backed by the corporate wallet. ) (quoting Marie Cocco, Bush Tortures: Facts on Trial Lawyers, NEWSDAY, July 13, 2004, at A39); Denise E. Antolini, Punitive Damages in Rhetoric and Reality: An Integrated Empirical Analysis of Punitive Damage Judgments in Hawaii, 1985-2001, 20 J.L. & POL. 143, 145 (2004) (punitive damages have served as the notorious poster children of the national tort reform movement ). 16. Stephen Daniels & Joanne Martin, The Impact That It Has Had Is Between People s Ears: Tort Reform, Mass Culture, and Plaintiffs Lawyers, 50 DEPAUL L. REV. 453, 454 (2000).

FALL 2016] Take a Stand Against Holmes s Bad Man 221 injury suits are more common than ever, frivolous lawsuits are the norm, damages are too high, corporate defendants cannot get a fair trial, and aggressive plaintiffs personal injury lawyers make us all pay higher costs through increased insurance costs 17 and chilled innovation because of their greed in seeking punitive damages. 18 Further, tort reform proponents argue that punitive damages punish the wrong people (shareholders and consumers versus corporate decision makers), encourage more litigation, and create unpredictability. 19 In response, tort reform opponents argue that there is no liability crisis by pointing to empirical studies, 20 and contend that tort law serves an important public service of discouraging harmful behavior. They contend the tort reform movement is funded by big business interests that are damaging to the public good, and that the frivolous lawsuits pandemic is a myth. 21 Proponents of punitive damages see them as crucial to deterring harmful corporate and individual behavior by punishing the specific offender and deterring other possible offenders in the future. 22 Punitive damages are, in theory, a specific way to control intentional behavior tortfeasors deem economically sound, even though they know it runs a risk of harming others. 23 Punitive damages can be used to make Ken change his behavior in the following example: Ken slaps Stan. The fine for slapping Stan is $19 dollars. Ken is happy to pay this fine, and continue slapping Stan (and anyone else his hands can reach). But, if punitive damages can be awarded, Ken will have to take this into account, and Ken will be influenced to curb his behavior so he avoids situations where he might be 17. But see Jessica Mantel, Spending Medicare s Dollars Wisely: Taking Aim at Hospitals Cultures of Overtreatment, 49 U. MICH. J.L. REFORM 121, 133 (2015) (arguing that prices are raised not only because of the fear of medical malpractice suits, but also because of Medicare s own pricing structure because physicians [are paid] for each unit of service provided, fee-forservice rewards doing more. ). 18. Daniels & Martin, supra note 16, at 453 55; About ATRA, AM. TORT REFORM ASS N, http://www.atra.org/about (last visited Sept. 24, 2016). 19. W. Kip Viscusi, Why There Is No Defense of Punitive Damages, 87 GEO. L.J. 381, 381 85 (1998). 20. See Neil Vidmar, Experimental Simulations and Tort Reform: Avoidance, Error, and Overreaching in Sunstein et al. s Punitive Damages, 53 EMORY L.J. 1359, 1369-70 (2004) (providing a list of empirical studies showing that punitive damages are rare, and that the median punitive damage award in 1996 was, contrary to tort reform advocates belief, a modest $50,000.00) 21. Anthony J. Sebok, Punitive Damages: From Myth to Theory, 92 IOWA L. REV. 957, 964 (2007). 22. 22 AM. JUR. 2d Damages 559 (2016); see also RICHARD A. POSNER, ECONOMIC ANALYSIS OF LAW 242 (9th ed. 2014) (arguing that adding a dollop of punitive damages will make tort law a real deterrent). 23. POSNER, supra note 22, at 241.

222 University of Michigan Journal of Law Reform [VOL. 50:1 tempted to slap Stan, if the punitive damages award is set high enough. Punitive damages are also used to deter behavior that is especially egregious. 24 Either way, the purpose of punitive damages is to protect the public from serious wrongs by corporations, governments, and individuals. A great example of this is the previously mentioned Mathias v. Accor Economy Lodging, 25 where Judge Posner upheld a punitive damages award aimed to take the profit of the defendant s intentional wrongdoing away from it. The case revolved around Motel 6 s decision to rent out rooms that they knew were infested with bed bugs to hotel guests, and not tell customers of the bed bug infestation. If asked about bed bugs, its policy was to say they were ticks because this would frighten customers less. 26 Despite widespread media coverage of huge punitive damages awards e.g., Liebeck v. McDonald s Restaurants, also known as the McDonald s hot coffee lawsuit they are rare. 27 Under common law, in order to face a punitive damages award, a defendant must be sued in a state that allows punitive damages, and their actions must be found to be more egregious than necessary for a normal negligence suit. 28 While punitive damage awards are uncommon, proponents of punitive damages say they are necessary to curb the corporate focus on profit over safety. 29 Part I.A addresses the most convincing arguments for punitive damages. By covering these arguments, which are mainly based on the law and economics perspective on punitive damages, it is easier to see the problems in Part I.B, which traces the Supreme Court s confusing trail map of punitive damages decisions and tries to make sense of it. Part I.C covers Washington State s presumptive ban on 24. Id. at 244. 25. Mathias v. Accor Econ. Lodging, Inc., 347 F.3d 672, 678 (7th Cir. 2004) (upholding a punitive damages award 37.2 times the compensatory award). 26. Id. at 675. 27. Theodore Eisenberg, Damage Awards in Perspective: Behind the Headline-Grabbing Awards in Exxon-Valdez and Engle, 36 WAKE FOREST L. REV. 1129, 1130 (2001); Michael L. Rustad, The Incidence, Scope, and Purpose of Punitive Damages: Unraveling Punitive Damages: Current Data and Further Inquiry, 1998 WIS. L. REV. 15, 69 (1998) (showing that, empirically, up to 1998, there is no nationwide punitive damages crisis. The research shows that punitive damages cluster in business tort and intentional tort cases, not personal injury. The increase in punitive damages is largely confined to a few jurisdiction. ). 28. The actual standard varies by state, but it is typically a clear and convincing standard of the defendant s culpable mental state. 29. Rustad, supra note 27, at 47 ( If potential wrongdoers know that their total exposure is limited to a fixed amount, there is only a limited deterrent effect. Removing wealth from the punitive damages equation also eliminates effective punishment. ); see Mathias, 347 F.3d at 674 (explaining that, in the lower court proceedings, the jurors agreed with the plaintiffs argument that the defendant should be liable for punitive damages due to their willful and wanton conduct ).

FALL 2016] Take a Stand Against Holmes s Bad Man 223 punitive damages, the 1891 lawsuit that took punitive damages out of Washington juries hands, and the few statutory exceptions where the state allows punitive damages. A. The Law and Economics Take on Punitive Damages: Optimal Deterrence Law and economics provides a useful perspective on punitive damages. Several law and economics theorists have explained why punitive damage awards can be a positive asset to public welfare. These reasons include effectively deterring behavior society deems dangerous, 30 allowing tortfeasors to continue to positively contribute to society, 31 forcing parties to the market, 32 and protecting society from predatory behavior. 33 The law and economics perspective on punitive damages hinges on deterrence and punishment, but is balanced by the discipline s concern of avoid[ing] overcompensation as [well as] undercompensation. 34 Typically, law and economics theorists say that optimal deterrence is reached by awarding a punitive damage judgment that takes into account the degree of discoverability of the tortfeasor s act. 35 The law and economics professor will take the probability of detection and multiply it by the profit the tortfeasor makes from the act. 36 This understanding gives support to Judge Posner s decision in Mathias, because the defendant deliberately tried to conceal its tortious acts. Judge Posner supports this assertion in his comprehensive and definitive book on the doctrine, Economic Analysis of Law, explaining that punitive damages punish a tortfeasor who sneaks by detection in the past, and therefore reach[es] the correct level of deterrence. 37 This inquiry relies on deterrence, not punishment, for justification. The law and economics perspective on criminal punishment underlines the benefits of punitive damages. Economists believe fines 30. Sharkey, supra note 12, at 418. 31. POSNER, supra note 22, at 262 (explaining the social costs of imprisonment greatly exceed the costs of collecting fines from solvent defendants ). 32. Id. 33. Id. 34. Id. at 223. 35. A. Mitchell Polinsky & Steven Shavell, Punitive Damages: An Economic Analysis, 111 HARV. L. REV. 869, 887 88 (1998). 36. POSNER, supra note 22, at 242 ( If a tort is concealed (as in a hit-and-run accident), punitive damages or a criminal penalty must be added to the defendant s profit or the victim s loss to provide adequate deterrence. ). 37. Id.

224 University of Michigan Journal of Law Reform [VOL. 50:1 are a better criminal punishment than incarceration because fines are cheaper to implement, allow for the right amount of punishment and deterrence, and allow the individual to continue working and contributing to society. 38 Insolvency issues explain why fines are not used more in our criminal justice system. 39 B. The Supreme Court Does Punitive Damages, Timidly Over the last twenty-five years, the Supreme Court has heard several important punitive damage cases. Through these cases, the Supreme Court has developed a set of murky boundaries within which punitive damage awards are allowed under the Constitution. Understanding these constitutional boundaries sheds light on what is possible for any potential punitive damage scheme in Washington. Through these punitive damages cases, the Supreme Court underscores its focus on ensuring punitive damage awards correspond to the intentionally tortious act that harmed the victim, and are a predictable penalty. 1. The Excessive Fines Clause of the Eighth Amendment Does Not Apply to Civil Cases In Browning-Ferris Indus. v. Kelco Disposal, 40 the Supreme Court held that neither the Excessive Fines Clause of the Eighth Amendment nor federal common law provided a basis for disturbing the jury s punitive damages award in a civil case. Browning-Ferris involved an antitrust suit, where the plaintiff, Kelco Disposal, brought forth and won an antitrust and interference with contractual relations lawsuit in Vermont. The trial court awarded, and the Supreme Court eventually upheld, $51,146 in compensatory damages and $6 million in punitive damages for interfering with Kelco s contractual relations. 41 This holding is in full force today. 38. Id. at 261. 39. See infra Part I.C.2. (explaining how fines struggle to deter intentional criminal conduct for some criminals). 40. 492 U.S. 257, 280 (1989). 41. Id. at 261 62.

FALL 2016] Take a Stand Against Holmes s Bad Man 225 2. A Framework for Determining Excessiveness Under the Fourteenth Amendment for Due Process In 1991, the Supreme Court refused in Pacific Mutual Life Insurance Company v. Haslip to draw a mathematical bright line between the constitutionally acceptable and the constitutionally unacceptable [punitive damage awards] that would fit every case, and opted for a test of general concerns of reasonableness. 42 This balancing test consisted of several factors to determine if the punitive award is reasonably related to the goals of punishment and deterrence. 43 The factors used in considering whether the punitive damage award is excessive or inadequate are: (a) whether there is a reasonable relationship between the punitive damages award and the harm likely to result from the defendant s conduct as well as the harm that actually has occurred; (b) the degree of reprehensibility of the defendant s conduct, the duration of that conduct, the defendant s awareness, any concealment, and the existence and frequency of similar past conduct; (c) the profitability to the defendant of the wrongful conduct and the desirability of removing that profit and of having the defendant also sustain a loss; (d) the financial position of the defendant; (e) all the costs of litigation; (f) the imposition of criminal sanctions on the defendant for its conduct, these to be taken in mitigation; and (g) the existence of other civil awards against the defendant for the same conduct, these also to be taken in mitigation. 44 After considering these factors, the Supreme Court decided in this case, where the plaintiffs insurer misappropriated premiums, causing the plaintiffs health insurance policies to lapse without them knowing, that a punitive damages award of more than four times the compensatory award was not excessive. 45 42. 499 U.S. 1, 18 (1991). 43. Id. at 21 (quoting Green Oil Co. v. Hornsby, 530 So. 2d 218, 222 (Ala. 1989)). 44. Id. at 21 22. 45. Id. at 6 7, 22.

226 University of Michigan Journal of Law Reform [VOL. 50:1 3. Using a General Concern of Reasonableness to Determine if the Punitive Award is So Grossly Excessive as to Violate the Due Process Clause of the Fourteenth Amendment Two years later, the Supreme Court returned to punitive damages. In TXO Prod. Corp. v. Alliance Res. Corp., the Court focused on the general concerns of reasonableness illustrated in Haslip to decide whether a punitive damages award for a common-law slander of title suit against a large and wealthy company, TXO, engaged in a knowing baseless quitclaim deed to leverage more royalties from Alliance Resources Corporation just like it had done to other small businesses across the country violated the Due Process Clause of the Fourteenth Amendment. 46 Justice Stevens announced the decision of the Court, which did not have a majority opinion, that the judgment against TXO, which included $19,000 in actual damages and $10 million in punitive damages for slander of title, was not excessive under the Fourteenth Amendment s Due Process Clause. 47 The punitive damages were 526 times the compensatory damages, which passed the general concerns of reasonableness standard under the Fourteenth Amendment. 48 4. Judicial Review is an Important Safeguard to Ensure Punitive Damage Awards are Constitutional The Court next heard an Oregon negligence action where the defendant, Honda, created and sold three-wheel all-terrain vehicles (ATVs), one of which overturned while plaintiff Karl Oberg was driving it. The jury agreed with Oberg s estate that Honda should have known that its ATV had an inherently and unreasonably dangerous design. 49 Honda appealed on the grounds that the punitive damage award was unconstitutional under the Fourteenth Amendment of the Constitution because Oregon s recent statute, OR. REV. STAT. 30.9325(3), 50 violated due process. 51 The statute says that judicial review of the amount of punitive damages awarded by a jury is only permitted if a court can affirmatively say there is no evidence to support the verdict. The Oregon Supreme Court upheld the trial 46. 509 U.S. 443, 443 (1993). 47. Id. at 462. 48. Id. at 473 (O Connor, J., dissenting). 49. Honda Motor Co. v. Oberg, 512 U.S. 415, 418 (1994). 50. Id. at 427, 440. 51. Id. at 415.

FALL 2016] Take a Stand Against Holmes s Bad Man 227 court s decision, but the Supreme Court of the United States reversed, holding that the functional denial of the review of punitive damages violated the Due Process Clause of the Fourteenth Amendment because [p]unitive damages pose an acute danger of arbitrary deprivation of property since juries have wide discretion in awarding damages and because Oregon removed that safeguard [judicial review of punitive damages] without providing any substitute procedure and without any indication that the danger of arbitrary awards has in any way subsided over time. 52 5. 500-to-1 Punitive to Compensatory Damage Award is Not Constitutional if Conduct is Not Particularly Reprehensible, and There is Only Minor Economic Damage In BMW of N. Am. v. Gore, the Supreme Court held that a $2 million award of punitive damages was grossly excessive under the Fourteenth Amendment when the compensatory damages were only $4,000. 53 In the case, Dr. Gore sued BMW for failing to disclose that his new BMW had been repainted after it was damaged by acid rain during its delivery from Germany. At trial, BMW admitted to having a nationwide policy of not informing its customers of delivery damage when the costs did not exceed three percent... of the car s suggested retail price. 54 Justice Stevens majority opinion looked at three guideposts to determine whether the defendant, BMW, had received adequate notice of the possible sanctions it could face. 55 These guideposts were: (1) the degree of reprehensibility of the nondisclosure; (2) the disparity between the harm or potential harm suffered by the plaintiff and their punitive damages award; and (3) the difference between this remedy and the civil penalties authorized or imposed in comparable cases. 56 52. Id. at 432. 53. BMW of N. Am. v. Gore, 517 U.S. 559, 574 75 (1996). 54. Id. at 559. 55. Id. 56. Id.

228 University of Michigan Journal of Law Reform [VOL. 50:1 6. General Guideline: Few Punitive Damage Awards Exceeding a Single-Digit Ratio with Compensatory Damages Will Satisfy Due Process The Court in State Farm Mut. Auto. Ins. Co. v. Campbell gave more explicit guidance on navigating the punitive to actual damages ratio. In this case, plaintiffs brought a bad faith insurance claim against State Farm, and used evidence of State Farm s national scheme which involved fraudulently capping claimant payouts to meet its own predetermined corporate financial goal to obtain a $1 million compensatory damage award and a $145 million punitive damages award. Justice Kennedy, writing for a six-justice majority, declared that a $145 million punitive damage award for only $1 million in compensatory damages was grossly excessive. 57 The Court noted that, in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process. 58 The Court then reviewed the Utah Supreme Court s application of the three Gore factors (1) reprehensibility, (2) ratio of actual damages to punitive damages, and (3) comparable civil remedies and found that this was not one of the rare circumstances where a punitive to compensatory damages ratio greater than a single-digit ratio would satisfy due process. 59 The Court s reasoning shows its focus on predictability and distaste for punishment for its own sake in civil suits. Under the first Gore guidepost, the reprehensibility analysis, the Supreme Court noted that the reprehensibility of a defendant should be determined by looking at five factors: whether (1) the harm was physical or economic; (2) the tortious conduct showed an indifference to or reckless disregard of the health or safety of others; (3) the target of the conduct had financial vulnerability; (4) the conduct involved repeated actions or was an isolated incident; and (5) the harm was the result of an intentional act or an accident. 60 The Utah Supreme Court instead used this case as a platform to expose, and punish, the perceived deficiencies of State Farm s operations throughout the country. 61 In contrast, the United States Supreme Court, referring to the plaintiffs use of State Farm s conduct in other states where it was legal, held [l]awful out-of-state conduct may be probative when it demonstrates the deliberateness and culpability of the 57. State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 429 (2003). 58. Id. at 425. 59. Id. at 429. 60. Id. at 419. 61. Id. at 420.

FALL 2016] Take a Stand Against Holmes s Bad Man 229 defendant s action in the State where it is tortious, but that conduct must have a nexus to the specific harm suffered by the plaintiff. 62 The Court then went on to the second Gore guidepost, the ratio of actual damages to punitive damages, and held that, while there are no rigid benchmarks that a punitive damages award may not surpass, [s]ingle digit multipliers are more likely to comport with due process. 63 The Court held the adverse effect on Utah s population by State Farm s national policies, which included failing to report a $100 million punitive damage award in Texas, was minimal and had little bearing on this case because the plaintiff was unable to direct the Court to evidence demonstrating actual harm to the people of Utah. 64 The Court further held that, while the wealth of a defendant can be an appropriate and lawful factor to consider, 65 this factor cannot make up for the failure of other factors, such as reprehensibility.... The Court also limited the scope of the third factor, similar civil penalties analysis, by holding it is inappropriate to compare irrelevant and dissimilar out-of-state conduct. 66 7. Punitive Damage Awards Can Only be Based Off Harm Suffered by Parties to the Case In Philip Morris USA v. Williams the Supreme Court decided a complex tobacco case. 67 Jesse Williams estate, and his widow, sued Phillip Morris for leading Jesse to believe that cigarettes were not bad for him, causing him to become addicted and die from smoking-related lung cancer. 68 Williams attorney told the jury to [t]hink about how many other Jesse Williams in the last 40 years in the State of Oregon there have been.... [C]igarettes... are going to kill ten [of every hundred]. 69 The Court held that punitive damages based on a jury s desire to punish a defendant for harming others not party to the case is a taking of property from the defendant without due process and remanded Williams suit. 70 62. Id. at 422. 63. Id. at 425. 64. Id. at 427. 65. Id. at 428. 66. Id. at 427. 67. 549 U.S. 346 (2007). 68. Id. at 349 50. 69. Id. at 350. 70. Id. at 357.

230 University of Michigan Journal of Law Reform [VOL. 50:1 8. 1-to-1 Compensatory to Punitive Damages Ratio is a Fair Upper Limit for Maritime Cases In the latest installment of the Supreme Court s take on punitive damages, the Court tackled the maritime case of the Exxon Valdez. 71 While this case does not deal with Fourteenth Amendment due process, and instead focuses on the specifics of federal maritime common law, 72 it sheds light on the Court s more recent attention on predictability in punitive damages. The Exxon Valdez, a supertanker grounded under the watch of intoxicated captain Joseph Hazelwood, spilled millions of gallons of crude oil into the Prince William Sound. 73 The compensatory damages were $507.5 million, and the trial court awarded $5 billion in punitive damages, which was reduced to $2.5 billion by the Ninth Circuit, and to $507.5 million by the Supreme Court. 74 In declining to uphold the original punitive damages award, Justice Souter held that a ratio of 1:1 of compensatory to punitive damages is the maximum amount of damages that can be awarded for an unintentional tort. 75 Justice Souter went to great lengths to emphasize that this case did not deal with an intentional tort, but an unintentional and reckless act. 76 Justice Souter further discussed the importance of predictability for even intentional tortfeasors by noting, [a] penalty should be reasonably predictable in its severity, so that even Holmes s bad man can look ahead with some ability to know what the stakes are in choosing one course of action or another. 77 Drawing from these cases, it is unclear how robust the Supreme Court s presumption against punitive damage awards in excess of a single digit ratio between punitive and compensatory damages is, or how predictable a punitive damage award must be. Yet it appears that the Court is concerned with making sure the punitive damage award is not based off of a jury s dislike of the defendant, but rather on their intentional and reprehensible harm to a specific plaintiff. Further, the Court is preoccupied with making sure punitive damage amounts are predictable by intentional tortfeasors. With the Supreme Court s regular attendance to punitive damages, it is likely 71. Exxon Shipping Co. v. Baker, 554 U.S. 471 (2008). 72. Id. at 475. 73. Id. at 476. 74. Id. at 481, 514. 75. Id. at 513. 76. Id. at 493. 77. Id. at 502.

FALL 2016] Take a Stand Against Holmes s Bad Man 231 that the court will hear another case on punitive damages soon. 78 A statute or judicial ruling on punitive damages from Washington State could go a long way in serving as a model of effective use of punitive damages for the entire country in light of the Court s perplexing precedent. C. The Punitive Scene in Washington: Largely Vacant Washington is one of a minority of states that generally do not award punitive damages. Washington prevents courts from awarding punitive damages unless the action falls under (1) one of the few statutes specifically allowing for punitive damages, 79 (2) the action is based in federal maritime law, 80 or (3) there is a conflict of law which allows Washington to apply the laws of another state that allows punitive damages. 81 Excepting these narrow situations, Washington has barred punitive damage awards since 1891, two years after it became a state, when the Washington Supreme Court held in Spokane Truck & Dray Co. v. Hoefer, Surely the public can have no interest in exacting the pound of flesh.... [P]unitive damages cannot be allowed on the theory that it is for the benefit of society at large, but must logically be allowed on the theory that they are for the sole benefit of the plaintiff, who has already been fully compensated; a theory which is repugnant to every sense of justice. 82 Washington s ban on punitive damages is interesting because it took place in a time completely removed from the tort reform focus of the last couple of decades. Yet even with Washington s ability to dodge most of the popular tort reforms in the United States, it is hard to believe that the media and public s focus on tort reform does not affect the continued ban on punitive damages in Washington. 83 Washington is a good candidate for allowing punitive 78. David S. Kemp, The Constitution and Punitive Damages: A Ten-Year Anniversary Discussion of State Farm v. Campbell, VERDICT (Apr. 8, 2013), https://verdict.justia.com/2013/04/ 08/the-constitution-and-punitive-damages. 79. Barr v. Interbay Citizens Bank, 635 P.2d 441, 443 (Wash. 1981) ( Under the law of this state [Washington], punitive damages are not allowed unless expressly authorized by the legislature. ). 80. Clausen v. Icicle Seafoods, Inc., 272 P.3d 827, 831 (Wash. 2012). 81. See Singh v. Edwards Lifesciences Corp., 210 P.3d 337, 342 (Wash. Ct. App. 2009). 82. 25 P. 1072, 1074 (Wash. 1891). 83. See Scott DeVito & Andrew W. Jurs, Doubling-Down for Defendants: The Pernicious Effects of Tort Reform, 118 PENN ST. L. REV. 543, 545 48 (2014) (positing there are two causes of

232 University of Michigan Journal of Law Reform [VOL. 50:1 damages because it has avoided the brunt of the national tort reform movement, and is unburdened by outdated and ineffective punitive damage statutes that must be repealed since the state has never had a comprehensive punitive damage statute. For these reasons, it is important to understand the current state of punitive damages in Washington. 1. No Punitive Damages Unless a Statute Green Lights Them, If They Are Brought Under General Maritime Law, or Under the Laws of Another State There are currently a few specific ways to get punitive damages in Washington. The most common way is if punitive damages are specifically codified by legislation. Some codified punitive damage awards include violations of the Insurance Fair Conduct Act, 84 action by governmental entities, 85 and trespass to trees, shrubs, and timber. 86 These exceptions to the punitive damages rule in Washington are narrow, have their issues, 87 and their critics. 88 General maritime law claims are another exception that allows punitive damage awards in Washington. The reason is that maritime actions brought in Washington state courts are governed by federal maritime law, which recognizes general maritime law. Under general maritime law, an employer [that acts] callously or willfully in withholding maintenance and cure [is] a basis for recovering attorney fees and punitive damages. 89 Unfortunately, this narrow exception leaves the land bound population of Washington without access to punitive damages. A third exception are cases that involve a choice of law between Washington and another state, where the other state allows punitive damages and has greater contacts to the case that lead to greater public policy and governmental concerns than Washington. In reduction in medical malpractice torts: (1) tort reform laws, and (2) background non-statutory drop in medical malpractice tort filings, and they result in too large of a drop in tort filings). 84. Insurance Fair Conduct Act, WASH. REV. CODE 48.3.015(2) (2007) ( [i]ncrease the total award of damages to an amount not to exceed three times the actual damage ). 85. Consumer Protection Act, WASH. REV. CODE 19.86.090 (2009) (allowing treble damages for successful plaintiffs). 86. Injury to Trees Act, WASH. REV. CODE 64.12.030 (2009). 87. Capping damages, like the Insurance Fair Conduct does (at three times the damage), reduces the punitive damage s effectiveness. 88. Joe Hampton, Let s Hope Oregon Doesn t Replicate Washington s IFCA Mistake, INSURANCE COMMANDO BLOG (Apr. 7, 2015, 11:26 PM), http://www.bpmlaw.com/lets-hope-oregondoesnt-replicate-washingtons-ifca-mistake/. 89. Clausen v. Icicle Seafoods, Inc., 272 P.3d 827, 831 (Wash. 2012).

FALL 2016] Take a Stand Against Holmes s Bad Man 233 these circumstances, Washington can elect to award punitive damages under that state s laws. 90 Even with these available avenues for punitive damages in Washington, they are rarely used. 91 Punitive damages are unavailable in Washington, unless you are lucky enough to be injured in a peculiar set of circumstances listed in this section. Washington courts do not allow punitive damages if you or a family member gets hit by someone who intentionally drank too much before intentionally getting into his car and driving; 92 if you were hit or almost hit by a safe that was being lifted into a room five stories above you; 93 if you are severely injured by an intentionally poorly made product; and an endless list of other tortious acts that should be deterred. 2. The Common Law on Punitive Damages in Washington: A Pound of Flesh Does Not Help the Public Since 1891, Washington courts have explicitly held that in civil cases once a plaintiff is compensated for all of their resulting injuries by a tortfeasor including mental, emotional, and loss of reputation punitive damages cannot be allowed on the theory that it is for the benefit of society at large. 94 The seminal case, Spokane Truck & Dray Co. v. Hoefer, revolved around the reckless hoisting by the defendant of a heavy safe five stories above a commonly used building entrance, which inevitably fell to the ground and broke the plaintiff s arm as she was leaving the building, completely unaware of the danger looming over her. 95 The court in Hoefer noted that criminal jurisdiction, and not civil jurisdiction, is the sole means of punishing defendants in Washington courts, and that a plaintiff in a civil case asking for punitive damages cannot benefit the state, since the state recouped its damages by making the tortfeasor compensate the victim. 96 This precedent is in full force today. A century after Spokane Truck & Dray Co. v. Hoefer, the Washington Supreme Court held: [s]ince 1891, in an unbroken 90. See Singh v. Edwards Lifesciences Corp., 210 P.3d 337, 342 (Wash. Ct. App. 2009). 91. See generally Rustad, supra note 27 (using empirical research to show punitive damage cases are rare). 92. Chris Davis, Should Washington State Allow Punitive Damages for Outrageous Conduct?, DAVIS L. GROUP BLOG (Aug. 5, 2011), http://www.injurytriallawyer.com/blog/should-washington-state-allow-punitive-damages-for-misconduct.cfm#comments. 93. See Spokane Truck & Dray Co. v. Hoefer, 25 P. 1072, 1074 (Wash. 1891). 94. Id. 95. Id. at 1072. 96. Id. at 1073 74.

234 University of Michigan Journal of Law Reform [VOL. 50:1 line of cases, it has been the law of this state that punitive damages are not allowed unless expressly authorized by the legislature. 97 3. Washington s Constitution: The Right to a Jury Trial Does Not Include Punitive Damages The Washington Supreme Court in Sofie v. Fibreboard Corp. held that, under Washington Constitution Article 1, 21, the right of trial by a jury did not include allowing juries to award punitive damages. 98 The Court decided that the right to a jury trial did not include punitive damages because the seminal case, Spokane Truck & Dray Co. v. Hoefer, failed to find that Const. Article 1, 21 allowed punitive damage awards. The Court additionally noted that, since three of the judges for the Spokane Truck & Dray Co. case served as drafters for the Washington Constitutional Convention two years prior, they likely knew that the drafters did not envision punitive damage awards in the right to a jury trial. 99 The constitutionality of the right to a jury trial excluding punitive damages has not been litigated in Washington since. Part I set the foundation for understanding the purpose of punitive damages. It also laid out the current state of punitive damages in the Supreme Court and in Washington State. Part II examines the benefits effective deterrence can offer Washington, and outlines the important contours that any punitive damage framework needs to be successful. This examination of the benefits of deterrence for the public good forms the basis of the reform in Part III. 97. Barr v. Interbay Citizens Bank, 635 P.2d 441, 445 (Wash. 1981) (citing Maki v. Aluminum Bldg. Products, 436 P.2d 186 (Wash. 1968); Spokane Truck & Dray Co., 25 P. at 1074. 98. 771 P.2d 711, 727 (Wash. 1989). While this seminal case written by Justice Utter overruled a statutory limit on recoverable non-economic damages for wrongful death suits, it did not extend the right of trial by jury to include punitive damages. 99. Id.; see Shoemaker v. Pang, No. 47242-9-I, 2001 Wash. App. LEXIS 362, at *18 (Wash. Ct. App. Feb. 21, 2001) (stating plaintiff s argument that the state constitutional right to a jury trial guarantees the right to allow juries to determine punitive damages... is unpersuasive. ).